The Misunderstood Free Markets – Part I
By Wes Keene | March 28, 2010 | In Category: Economy
This article is part one in a series of articles dedicated to educating people on the workings of the free market system. It’s critical to have a basic understanding of the system we all rely on. It’s essential to be able to debunk non-sense that comes out of the mouths of politicians looking to gain votes and power (and occasionally cash) by ripping one industry or another to shreds. In this article, we start with the basics. Needless to say, countless healthy sized books have been written on the economy. It’s a huge subject and no pretense is made that every nuance is covered here. What we will try to do is expose the core ideas of a free market, and eliminate popular misconceptions.
When listening to liberals discuss the free market, emotions usually give way to falsehoods. Some are driven by malice found in popular media, while others are founded only in ignorance of the free market system. Since failure to make a family’s budget stretch to end of the month can have disastrous results, the subject naturally becomes heated. That’s one reason politicians latch on to a natural human tendency to blame others for our own problems.
In critical industries, politicians will explain, we need to have some special circumstances. Whenever you hear a politician bellyaching about price gouging, unfair practices, etc., eye such statements with extreme scrutiny. In principle there is no industry or sector which has such greatly different economic conditions that is require separate and increased government oversight. If grocers can successfully make sure everyone has a loaf of bread to buy, then health care can make sure every paying customer gets to see a doctor.
In reality, most of these claims from politicians are a power grab. It gives people a nice warm and fuzzy when a politician tells you they’ve reigned in some evil corporation and put the extra dollars they were “stealing” into your pocket. It might give you a warm and fuzzy feeling at the time, but it should have made you queasy. Government can only make things worse, if history is any indicator.
Other times, politicians’ populist claims make no sense at all, but they are supposed to make you feel better anyway. For instance, we recently created a health care law that says, in essence: Insurance companies are evil, so we will force all of you to buy a policy from them; but at the same time, we’re raising your taxes to buy even more people an insurance policy. It’s the subject of another article to debate the government’s intentions with this bill, but suffice to say it’s double-minded to say you want to reign in insurance companies, but also force people to buy from them.
In the free market, people engage in commerce with minimal interference. That means you can buy and sell products and services at a mutually acceptable price. When we shop, we’re acting as buyers. At work, we’re just acting as sellers of our own services. There is no difference between selling bread at a grocery store and selling your services to an employer. In a free market you can ask any price you like for your good or service, and any potential customer is free to agree to it…or not. When you try to ask too high of a price, customers will naturally seek out other sources of the same product or service for a lower price.
Despite claims by politicians to the contrary, free markets have no inherent evil personality. In fact, they have no personality at all; The market is just a system. While greed is often cited as the driver of free market economies, that’s usually the wrong way of describing the markets. A better way to phrase it is “self-preservation”. Just like you are constantly trying to make the same amount of money as yesterday (or more), companies also try to maintain and grow profits. Unsurprisingly, they do it for the very same reasons as you: They want to maintain a safety cushion for rainy days, and give themselves room for future growth.
The free market is, in essence, the only true economic system. Every other system is an attempt to pervert, guide, interfere with, or overtly control otherwise free markets…but free market principles still exist underneath it all, just in a severely contorted fashion. In our next article in the series, we’ll discuss how the buyer and seller interact.
March 29th, 2010 at 12:59 pm
Free market capitalism is the most democratic system there is. Since all free market transactions are voluntary, we vote with our pocketbooks determining which companies succeed and which one fail. Free market capitalism is a win/win system in which all participants, buyers and sellers, satisfy their needs. Socialism by comparison is based on jealousy, envy and greed.